SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-2265-95T5
JAMES L. INGRAHAM,
Plaintiff-Respondent,
v.
TROWBRIDGE BUILDERS,
Defendant-Appellant.
______________________________________
DEPARTMENT OF COMMUNITY AFFAIRS,
Intervenor-Appellant.
_____________________________________________________________
Argued November 7, 1996 - Decided January 30,
1997
Before Judges Keefe, Conley and Loftus.
On appeal from the Superior Court of New
Jersey, Law Division, Special Civil Part,
Camden County.
Thomas P. Thackston argued the cause for
appellant (Davis, Reberkenny & Abramowitz,
attorneys).
Respondent James L. Ingraham argued the cause
pro se.
Cheryl R. Clarke, Deputy Attorney General,
argued the cause for the Intervenor (Peter
Verniero, Attorney General of New Jersey,
attorney; Mary C. Jacobson, Deputy Attorney
General, of counsel).
The opinion of the court was delivered by
KEEFE, J.A.D.
Defendant Trowbridge Builders (Trowbridge) appeals from a judgment entered against it and in favor of plaintiff James L.
Ingraham (Ingraham) in the amount of $4,300 after a non-jury
trial. On appeal, Trowbridge contends that the trial judge erred
in failing to apply N.J.A.C. 5:25-1.3, a regulation promulgated
by the Department of Community Affairs (Department) pursuant to
the New Home Warranty and Builders' Registration Act (the Act),
to bar Ingraham's claim. Alternatively, Trowbridge contends that
the trial judge erred in failing to properly apply the doctrine
of mitigation of damages to Ingraham's claim.
The primary issue at trial was whether Ingraham was entitled
to damages under the Act, N.J.S.A. 46:3B-1 to -20.See footnote 1 In defense
of that claim, Trowbridge relied upon the provisions of N.J.A.C.
5:25-1.3. If applied to this case, that regulatory provision
would have precluded Ingraham's recovery. The trial judge,
however, determined that N.J.A.C. 5:25-1.3 was merely "an
interpretive rule without the force and effect of law." In view
of that determination, we granted the Department's motion to
intervene. Although we do not endorse the trial judge's reason
for not applying the subject regulation to the facts of this
case, we agree with the result, and, thus, affirm the judgment
under review for the reasons stated herein.
The trial judge made findings of fact relevant to liability that are not challenged on appeal. We take the following facts
from his letter opinion and add certain uncontested facts from
the record before us. Trowbridge constructed the house in
question in 1986. In April 1987, Trowbridge decided to use the
house as a model home. Accordingly, it obtained a temporary
certificate of occupancy and secured new home warranty coverage
(the HOW policy) under the Act.
Ingraham entered into a contract with Trowbridge to purchase
the home and closed title to the property on February 24, 1989.
Paragraph 23C of the contract stated: "The seller shall deliver
at settlement a registration certificate for a HOW policy. Said
policy is already in effect, and has a commencement date of April
22, 1987." Ingraham testified that he was not familiar with the
details of the Act or regulations and, based upon representations
made to him contemporaneous with the signing of the contract, was
under the impression that he was buying a new home and had until
April 1, 1989 to assert warranty claims against Trowbridge.
Within a month of the closing, Ingraham complained to Trowbridge
that rain water was seeping in through the front door. Indeed,
in a letter dated March 21, 1989See footnote 2, Ingraham asked Trowbridge for
a six month extension of what he understood to be the warranty
cutoff date.
Trowbridge made some attempts to satisfy Ingraham's
complaint concerning the leak without success. Ultimately, in
February 1990, Trowbridge agreed to replace and prime the door,
but not paint it, at the cost of $325. The offer was not
satisfactory to Ingraham because he felt Trowbridge had the
obligation to repair without cost to him.
When further discussions with Trowbridge were not
productive, Ingraham filed a claim with the Home Owners Warranty
Corporation (HOW). An inspector was dispatched by HOW to
investigate the claim. Although the inspection report disclosed
a defect in workmanship and materials which would have been
covered if made during the first year of the warranty, HOW
rejected the claim. The rejection was premised on HOW's
determination that coverage under the policy began on April 22,
1987, and, thus, Ingraham's claim for the defects discovered
during the inspection was simply untimely.
Inasmuch as Ingraham had not pursued a "remedy legally
available to the owner" by filing a claim with HOW, the trial
judge found that Ingraham preserved his right to pursue "any
remedy legally available to [him]" by filing this complaint in
Superior Court. N.J.S.A. 46:3B-9. The trial judge also found
that Ingraham proved through expert testimony that the defect in
the door frame that permitted water to enter the premises was
covered under the first year statutory warranty. N.J.S.A. 46:3B-3b(1). The question presented was when the first year warranty
period began. Did it begin on April 22, 1987, as Trowbridge
contended, or did it begin on February 24, 1989 when Ingraham
first occupied the house as a home? The Act provides that "[a]
builder of a new home shall be liable to any owner thereof during
the time period when the new home warranty, . . ., is applicable
to the home for any defect therein which is covered by the
warranty in accordance with its terms and conditions." N.J.S.A.
46:3B-4. The "Owner" is defined as "any person for whom the new
home is built or to whom the home is sold for occupation by him
or his family as a home . . . ." N.J.S.A. 46:3B-2e. The
definition of "owner" does not include a "builder." N.J.S.A.
46:3B-2e and f.
As pertains to this case, the relevant statutory warranty
given by the builder to the owner was as follows: "[o]ne year
from and after the warranty date the dwelling shall be free from
defects caused by faulty workmanship and defective materials due
to noncompliance with the building standards as approved by the
commissioner . . . ." N.J.S.A. 46:3B-3b(1). (A two year
warranty is given on "defects caused by faulty installation of
plumbing, electrical, heating and cooling delivery systems," and
a ten year warranty for major construction defects. N.J.S.A.
46:3B-3b(2) and (3).) As to each warranty, the new home warranty
begins on the "warranty date." Id. The "warranty date" is
defined as "the first occupation or settlement date, whichever is
sooner." N.J.S.A. 46:3B-2h.
The Commissioner of the Department is given the authority to
"promulgate such rules and regulations as may be necessary to
carry out the provisions of [the] act." N.J.S.A. 46:3B-10.
Pursuant to that authority, a regulation was initially adopted
that essentially tracked the wording of the statute as to when
the warranty date began, i.e., "the first occupation or
settlement date, whichever is sooner."
10 N.J.R. 377(b),
11 N.J.R. 223(c). That definition was later amended to add the
words "or the date on which a certificate of occupancy issued
pursuant to N.J.S.A. 52:27D-119 et seq. is given over to the
owner" after the phrase "settlement date."
17 N.J.R. 2816(a),
18 N.J.R. 959(a). That amendment was subsequently rescinded and the
original definition was amended to include "in the case of model
homes, the warranty date will be the date on which a temporary
certificate of occupancy is issued . . . ."
18 N.J.R. 959(a);
presently N.J.A.C. 5:25-1.3.
Trowbridge obtained a temporary certificate of occupancy as
to this particular house on April 22, 1987. Thus, it contended,
in accord with the regulation, that the one year warranty on the
subject "new home" began on that date and had expired by the time
Ingraham made the claim. The trial judge found that N.J.A.C.
5:25-1.3 was an "interpretive rule" without force and effect of
law, and, thus, not binding on him because it was "simply the
agency's opinion of the meaning of a statute." He concluded that
"a model home is not occupied within the meaning of [the Act]
until someone occupies it as a home." Inasmuch as the model was
not occupied as a home until the settlement date of February 24,
1989, the trial judge reasoned that date was the warranty date
for the purpose of computing the first year warranty.
In coming to the conclusion that N.J.A.C. 5:25-1.3 was an
interpretive rule, the judge relied upon federal cases
interpreting the federal Administrative Procedure Act (APA), 5
U.S.C. sec.553 (b). However, there is no analogy between the APA
and the State Administrative Procedure Act (SAPA), N.J.S.A.
52:14b-1 et seq. Unlike the APA, SAPA does not distinguish
between substantive and interpretative rules. Under SAPA, an
administrative rule is defined as an agency statement of general
applicability and continuing effect that implements or interprets
law or policy, or describes the organization, procedure or
practice requirements of any agency. N.J.S.A. 52:14B-2(e). The
term does not include an agency decision in contested cases. Id.
Indeed, where an agency's interpretation of a statute is intended
to apply across the board to all similarly situated parties, the
agency must proceed by regulation and not by interpretative,
quasi judicial decisionmaking. Metromedia, Inc. v. Director,
Div. of Taxation,
97 N.J. 313 (1984). Thus, N.J.A.C. 5:25-1.3 is
not merely an interpretive rule. It is a regulation promulgated
pursuant to statutory authority and has the force and effect of
law. D.I.A.L., Inc. v. New Jersey Dept. of Community Affairs,
254 N.J. Super. 426 (App. Div. 1992).
Regulations that are properly promulgated carry a
presumption of reasonableness. However, courts have invalidated
regulations that "undermine the intent of the legislature." GE
Solid State v. Director, Taxation Div.,
132 N.J. 298, 306-07
(1993). "[T]he courts remain the `final authorities' on issues
of statutory construction and are not obliged to `rubber stamp'
their approval of the administrative interpretation" given the
statute by the agency charged with its administration. New
Jersey Guild of Hearing Aid Dispensers v. Long,
75 N.J. 544, 575
(1978).
The Act was passed to protect new homeowners and abandon the
ancient doctrine of caveat emptor. McDonald v. Mianecki,
79 N.J. 275, 283-87 (1979). The Legislature recognized that "[t]he
purchase of a new home is not an everyday transaction for the
average family; . . . in many instances [it] is the most
important transaction of a lifetime." Id. at 287-88 (citations
omitted). The Legislature intended to give buyers, such as
Ingraham, the benefit of the warranties defined in section 3B of
the Act from the time of "first occupation" by "him or his family
as a home," or the "settlement date whichever is sooner."
N.J.S.A. 46:3B-2(e) and (h). Thus, the Act's provisions must be
interpreted with those principles in mind.
Trowbridge contends, and the Department agrees, that in
accord with the plain wording of the regulation the one year
warranty on Ingraham's "new home" began on April 22, 1987 and
expired on April 22, 1988, eight months before it was sold to
Ingraham "for occupation by him . . . as a home" and ten months
before the "first occupation" of the house as a home. N.J.S.A.
46:3B-2(e) and (h). The end result, of course, is that, as
respects model homes, the first year statutory warranty is
rendered nugatory when the model home is sold, as in this case,
more than one year after the temporary certificate of occupancy
is issued, and, when the home is sold within the year after the
temporary certificate is issued, the owner receives less than the
one year warranty. If Trowbridge's argument is accepted this
result would abide, notwithstanding the clear statutory mandate
that the warranties are given by the builder to the owner, that
the builder cannot be an owner by definition, and that the owner
is to have the benefit of the warranties for a fixed period
commencing on the relevant warranty date. N.J.S.A. 46:3B-4 and
46:3B-3(e),(f),(h). Under Trowbridge's and the Department's
construction of the statute, Trowbridge gave itself the one year
warranty which the Legislature clearly envisioned was to be given
by the builder to the owner. N.J.S.A. 46:3B-4.
We cannot imagine that the Legislature intended such an
absurd result, yet the Department contends in its brief that the
subject regulation dutifully expresses statutory intent. It
argues:
The coverage for defective systems,
workmanship and material for a one-year
period is predicated on wear and tear from
occupancy and the natural degradation of
materials over time. As to a model home, the
Legislature would not expect a builder to be
responsible for first year defects years
after the home was opened for display. Thus
understood, the regulatory definition of
warranty date is consistent with the enabling
statute and the express and implied
legislative policies.
There is no such legislative intent, express or implied, in the
statute, at least with respect to the builder's use of a "new
home" as a model.
While the warranty covering claims for defective material
and workmanship may very well have been limited to one year by
the Legislature to take into account "wear and tear from
occupancy," there is no reason to believe that the occupancy
anticipated by the Legislature was occupancy by the builder. The
only context in which occupancy is addressed in the statute is
occupancy by the owner, not the builder. N.J.S.A. 46:3B-1. In
any event, the record discloses without doubt that the defect
proven in this case had nothing to do with wear and tear caused
by occupancy. Rather, it was a defect caused by poor workmanship
and materials at the time of construction.
Interestingly, the Department conceded at oral argument that
had this house been constructed by Trowbridge on speculation,
never been used as a model home, and sold to Ingraham three years
after construction, Ingraham would have been entitled to the one
year warranty, despite "wear and tear" resulting from prospective
buyers traipsing through the house over that same period, and
despite the "degradation of materials over time." Under that
hypothetical scenario, the Department acknowledges that the
builder is the one who bears the risk and burden of wear and tear
and the degradation of materials, not the new home owner. That
being so, we can find nothing in the statute requiring a
different result simply because the builder decides for its own
purposes to designate the house as a "model." A builder's
decision to use a house built on speculation as a model home is a
business decision made primarily for its benefit to facilitate
the marketing of the house. There is nothing in the statute,
either express or implied, that evidences an intent to protect
the builder rather than the new home owner under such
circumstances. Indeed, the regulation frustrates the legislative
goal. Therefore, we declare the regulation invalid.
Trowbridge Builders, contends that Ingraham had a duty to mitigate damages. Mitigation of damages is a concept which takes into account the injured party's acts or failure to act when computing the amount of his recovery. White v. Township of North Bergen, 77 N.J. 538, 546 (1978). The Court in Ostrowski v. Azzara, 111 N.J. 429, 441 (1988), explained the concept of the duty to mitigate, or the doctrine of avoidable consequences, by comparing it to the doctrine of contributory negligence. The Court stated that the doctrine of avoidable damages is
[w]here the defendant has already committed an actionable wrong, whether tort or breach of contract, then this doctrine [avoidable consequences] limits the plaintiff's recovery by disallowing only those items of damages which could reasonably have been averted * * *[.]" "Contributory negligence is to be asserted as a complete defense, whereas the doctrine of avoidable consequences is not considered a defense at all, but merely a rule of damages by which certain particular items of loss may be excluded from consideration * * *." McCormick on Damages, West Publishing Company, 1935, Chapter 5, Avoidable Consequences, pages 127, et seq.; see also 61 Harvard Law Rev.ew (1947), 113, 131-134, Developments in Damages.
[Ibid.].
Further, the Court held that "expressing mitigation of damages as
a percentage of fault reducing plaintiff's damages has been found
to be a proper method for fairly accounting for failure to
mitigate." Id. at 445.
Thus, "[i]t is well settled that injured parties have a duty
to take reasonable steps to mitigate damages." McDonald, supra,
79 N.J. at 299. Damages will not be recovered to the extent that
the injured party could have avoided his losses through
reasonable efforts "without undue risk, burden or humiliation."
Restatement (Second) of Contracts, Section 350(1),(2) (1981).
The Restatement provides some guidance on when the duty to
mitigate begins:
Once a party has reason to know that
performance by the other party will not be
forthcoming, he is ordinarily expected . . .
to take such affirmative steps as are
appropriate in the circumstances to avoid
loss by making substitute arrangements or
otherwise. . . The amount of loss that he
could reasonably have avoided by . . . making
substitute arrangements . . . is simply
subtracted from the amount that would
otherwise have been recoverable as damages.
[Restatement (Second) of Contracts, Section
350, comment b (1981)].
The Restatement further provides how much time the injured
party has to make substitute arrangements:
The injured party is expected to arrange a
substitute transaction within a reasonable
time after he learns of the breach. . . The
injured party may, however, make appropriate
efforts to urge the repudiating party to
perform in spite of his repudiation, and
these efforts will be taken into account in
determining what is a reasonable time.
[Restatement (Second) of Contracts, Section
350, comment f (1981)].
However, "the burden of proving facts in mitigation of
damages rest[s] upon the party breaching the contract." Cohen v.
Radio-Electronics Officers,
275 N.J. Super. 241, 262 (App. Div.
1994); see also Sommer v. Kridel,
74 N.J. 446, 457 (1977)
(wherein the Court stated, "generally in contract actions the
breaching party has the burden of proving that damages are
capable of mitigation"). Furthermore, it has been held,
that (w)here both the plaintiff and the
defendant have had equal opportunity to
reduce the damages by the same act and it is
equally reasonable to expect a defendant to
minimize damages, the defendant is in no
position to contend that the plaintiff failed
to mitigate. Nor will the award be reduced
on account of damages the defendant could
have avoided as easily as the plaintiff. . .
The duty to mitigate damages is not
applicable where the party whose duty it is
primarily to perform the contract has equal
opportunity for performance and equal
knowledge of the consequences of the
performance.
[Toyota Industrial Trucks U.S.A, Inc. v.
Citizens Nat'l Bank of Evans City, et al.,
611 F.2d 465, 471 (3d Cir. 1979); see also
Fiat Motors of North America, Inc. v. Mellon
Bank, N.A.,
827 F.2d 924, 930 (3d Cir.
(1987); Edward M. Crough, Inc. v. Dep't of
Gen. Services of the District of Columbia,
572 A.2d 457, 467 (D.C. 1990)].
Whether or not a plaintiff's efforts to mitigate his or her damages are reasonable "is a question for the trier of fact." Higgins v. Lawrence, 309 N.W.2d 194, 196 (Mich. Ct. App. 1981). Thus, the proper standard in a non-jury case regarding the judge's decision on mitigation of damages "is whether the judge's findings are supported by sufficient, credible evidence in the
record." Fanarjian v. Moskowitz,
237 N.J. Super. 395, 406 (App.
Div. 1989).
The trial judge's finding that Ingraham made reasonable
efforts to mitigate his damages through 1992 is supported by
"sufficient, credible evidence in the record." Ibid. Ingraham
made several efforts through September 1992 to have Trowbridge
fix the defect in his door.
Ingraham first tried to have Trowbridge correct the problem
in March 1989. Ingraham again contacted Trowbridge to resolve
the problem, when it was discovered that Trowbridge failed to
properly fix it the first time. Trowbridge was again
unsuccessful in fixing the leak. Trowbridge made a third,
unsuccessful attempt at fixing the leak, and Ingraham notified
Trowbridge for a fourth time. Trowbridge responded in a letter
dated April 21, 1989 that it was not responsible for damp
basements.
Ingraham then tried to fix the leak himself by applying
Thoroseal, but to no avail. Ingraham contacted defendants for a
fifth time. Trowbridge then told Ingraham that the entire door
assembly would have to be replaced. It subsequently changed its
position by stating that only the deteriorated portion had to be
replaced. Ingraham contacted Trowbridge again, who then offered
in a letter dated February 2, 1990, to fix only the door frame
(not the entire door) at a cost of $325. This offer was
rejected. Ingraham contacted Trowbridge again in October 1991,
who made a second offer to repair only the door frame, but this
time for a cost of $475. Ingraham rejected this offer also
because of his belief that Trowbridge was responsible for the
damage.
This chain of events presents "sufficient, credible
evidence" for the trial court's finding that Ingraham was
reasonable in his rejection of Trowbridge's offers to repair the
leak in light of their three failed attempts to repair the door,
and in light of their changed position as to how the door should
be repaired. Ibid. Ingraham made his final attempt at having
Trowbridge correct the problem in January 1992, when he filed a
claim with HOW, who denied his claim in September 1992.
Not until September 1992 did Ingraham have "reason to know
that performance by [Trowbridge would] not be forthcoming."
Restatement (Second) of Contracts, Section 350, comment b (1981).
At this point, plaintiff was "expected . . . to take such
affirmative steps as are appropriate in the circumstances to
avoid loss by making substitute arrangements." Id.
Furthermore, the plaintiff is "expected to arrange for
substitute [arrangements] within a reasonable time after he
learns of the breach." Restatement (Second) of Contracts,
Section 350, comment f (1981). In this case, the breach occurred
sometime in March 1989. However, the plaintiff may "make
appropriate efforts to urge the repudiating party to perform in
spite of his repudiation, and these efforts will be taken into
account in determining what is a reasonable time." Id.
Therefore, it was proper for the trial court, in this case, to
take into account the Ingraham's reasonable efforts, from March
1989 through September 1992, to have Trowbridge correct the
defect in his door.
In addition, Trowbridge, the party who breached the
contract, had the burden of proving that Ingraham failed to make
reasonable efforts through September 1992 to mitigate his
damages. There is sufficient, credible evidence to support the
judge's findings that Trowbridge failed to carry this burden.
Furthermore, Trowbridge had ample opportunity to mitigate the
Ingraham's damages, through September 1992, by the same acts.
The defendant also had "equal knowledge of the consequences of
the performance," or in this case, the failure to perform.
Toyota, supra, 611 F.
2d at 471. Thus, "the defendant is in no
position to contend that the plaintiff failed to mitigate. Nor
[should] the award be reduced on account of damages the defendant
could have avoided as easily as the plaintiff." Toyota, supra,
611 F.
2d at 471.
For the foregoing reasons, the damage award is affirmed.
Footnote: 1 The parties' tacit understanding is that there is nothing in the contract that would afford Ingraham the relief he sought in his complaint. The provisions of the Act may afford remedies to a home owner notwithstanding the provisions of the contract. Footnote: 2The letter was actually dated March 21, 1988: an obvious typographical error.